Five fundies managing $3.5bn of LICs and active ETFs share their insights

Chris Meyer

Pinnacle Investment Management Limited

This week at Pinnacle’s Investment Summit, $3.5bn of FUM in LICs and ETFs was on show across five boutique fund managers debating their best practice initiatives to make their listed funds investor friendly in a rapid fire Q&A session hosted by Lonsec.

We’ve written previously on Livewire about the LIC industry’s need to Adapt or Die and the active ETF market that is about to BOOM and these fundie insights really gave great practical insights on the same hot button issues from these pieces and the burning questions on LIC and ETF investor’s minds.

The panel was peppered with tough questions on the outlook for LICs given the NTA discounts that pervade the sector, especially for listed global and Aussie equity LICs and whether this means the LIC structure is fundamentally flawed. The Panel hit back with Antipodes MD Andrew Findlay pointing to their recently announced shareholder friendly tender offer program designed to narrow the NTA discount on their LIC (APL) as innovation that LICs can undertake to ensure shareholders best interests are met. Don Hamson from Plato reminded us that LICs can help smooth the income stream for LIC shareholders, more so than in an open-ended trust, a contributing factor to the NTA premium that the Plato LIC PL8 trades at. Spheria’s Marcus Burns outlined how running small cap Aussie equity money inside an LIC can be beneficial to shareholders as Spheria were never concerned about what impact any redemptions may have had on their need to sell some of their best stock picks in the portfolio if those redemptions happened at the market lows during the COVID induced market rout in March. Instead they were able to stay fully invested and ride the recovery.

Metrics’ Andrew Lockhart cautioned against LITs that invest in tradeable bonds, especially offshore high yield bonds given their volatility and the readily tradeable nature of such bonds, making a closed end structure for such underlying assets questionable. He explained why private corporate loans as an alternative source of income where investors can earn an illiquid asset return premium justifies the use of a LIT structure as illiquid private loans does not allow a fund to provide daily redemptions to investors. This means they can't be wrapped inside an ETF. Even one of the most vocal critics of LICs, Coolabah’s Christopher Joye said he would not rule out doing an LIT if the strategy was compelling for investors and that his beef is with conflicted remuneration not with the closed end structure per se.

In ETF land, the panel reminded us how fortunate we are to have a regulatory and stock exchange backdrop that allows investors to access actively managed funds in listed form via active ETFs. This active ETF industry is also continuing to innovate to improve investor experiences. Coolabah discussed how bond ETFs did exactly what they were meant to do during the bond market rout in March by providing even better price transparency on bond prices than the underlying bond markets themselves. Antipodes talked about how the indicative intraday NAV on active ETFs is used to guide market makers on making prices for active ETFs on the stock exchange have become more accurate and more frequent as the industry evolves and innovates, all providing active ETF investors with better transparency and price certainty.

At the end of the day, the panel concluded that it’s best to let the investor decide whether an LIC/LIT or an ETF is right for them. Most of these fundies now run the same or similar strategies in closed-end and open-end form and with a listed and an unlisted version. More choice in both must be a good thing for investors and at the same time provide new areas of growth and innovation for the fund industry. Win-win

This communication was prepared by Pinnacle Investment Management Limited (ABN 66 109 659 109 AFSL 322140) (‘Pinnacle’). Past performance is for illustrative purposes only and is not indicative of future performance. Unless otherwise specified, all amounts are in Australian Dollars (AUD). This communication is for general information only and was prepared for multiple distribution. Whilst Pinnacle believe the information contained in this communication is reliable, no warranty is given as to its accuracy, reliability or completeness and persons relying on this information do so at their own risk. Subject to any liability which cannot be excluded under the relevant laws, Pinnacle disclaim all liability to any person relying on the information contained in this communication in respect of any loss or damage (including consequential loss or damage), however caused, which may be suffered or arise directly or indirectly in respect of such information. The information is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. The information in this communication has been prepared without taking account of any person’s objectives, financial situation or needs. Any persons relying on this information should obtain professional advice before doing so. The issuer is not licensed to provide financial product advice. Please consult your financial adviser before making a decision. Any opinions and forecasts reflect the judgment and assumptions of Pinnacle and its representatives on the basis of information at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future. The information is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this communication is prohibited without obtaining prior written permission from Pinnacle. Pinnacle and its associates may have interests in financial products and may receive fees from companies referred to during this communication.

3 contributors mentioned

Chris Meyer
Pinnacle Investment Management Limited

Chris is part of the Pinnacle executive management team and responsible for driving the listed products business. Pinnacle’s mission is to establish, grow and sustain a diverse and complementary stable of world-class, specialist investment managers

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